REDMOND, Wash.  Microsoft (MSFT) Friday made an unsolicited takeover offer of $44.6 billion for Internet portal Yahoo (YHOO) in a bold bid to leapfrog Google (GOOG) as the dominant player in the fast emerging Internet advertising market.

Yahoo's senior executives and board of directors played coy, issuing a statement that the company "will evaluate this proposal carefully and promptly in the context of Yahoo's strategic plans and pursue the best course of action to maximize long-term value for shareholders."

"We've made a great offer to Yahoo shareholders and we respect the fact that their management and board have a lot to consider," said Kevin Johnson, Microsoft's president of platform and services, in an interview. "Our strong preference is working collaboratively with Yahoo."

But in conference call Friday morning, Microsoft Chief Executive Steve Ballmer indicated he won't take no for an answer after Yahoo rebuffed takeover overtures a year ago.

"This is a decision we have — and I have — thought long and hard about," Ballmer said. "We are confident it's the right path for Microsoft and Yahoo."

Microsoft's offer of $31 a share for Yahoo stock — a 62% premium to Yahoo's closing stock price Thursday — should get the attention of disgruntled Yahoo shareholders. Yahoo's share price dropped to a four-year low earlier this week, and a new management team has not said much publicly about how they intend to compete against Microsoft and Google through 2008.

The announcement lifted Yahoo's share price by almost 50% in morning trading, while Google fell more than 8%, dragged down by a fourth-quarter earnings report that missed Wall Street expectations.

"Microsoft's MSN properties and Yahoo are very similar, and Yahoo makes wide use of Microsoft technology, so the merger technically shouldn't be that difficult," says tech analyst Rob Enderle, of the Enderle Group. The merger could make the combined companies "a force to be reckoned with and prevent Google for obtaining nearly unlimited monopoly power," he says.

In a letter to Yahoo's board of directors, Microsoft Chief Executive Steve Ballmer revealed that Yahoo had rebuffed a previous overture a year ago, saying it had a turnaround in the works. But he pointedly noted that Yahoo's situation since then has deteriorated significantly.

"A year has gone by, and the competitive situation has not improved," Ballmer said.

Google already controls nearly 60% of the U.S. search market, and has been widening its lead, despite concerted efforts by both second-place Yahoo and third-place Microsoft. By combining, Microsoft and Yahoo would have a 33% share of the U.S. search market, according to the latest data from comScore Media Metrix.

By joining forces, Microsoft and Yahoo also would widen their narrowing advantage over Google in providing free e-mail accounts — a service that helps foster loyalty with users and create more advertising opportunities.

Advertisers around the world are expected to double their spending on the Internet the next three years as more people get their news and entertainment on the Web instead of television, radio, newspapers and magazines. The trend is expected to create an $80 billion online ad market in 2010, up from an estimated $40 billion last year.

And Yahoo has been struggling to attract advertising even though its website attracts one of the biggest audiences. The company's profit has declined for five consecutive quarters, prompting plans to cut 1,000 jobs later this month, a 7% reduction of its 14,300-employee workforce.

Besides helping to boost its online ad revenue, Microsoft believes it could mine more profit from Yahoo by jettisoning workers and eliminating overlapping operations.

Microsoft said it sees at least $1 billion in cost savings generated by the merger, and it intends to offer significant retention packages to Yahoo engineers, key leaders and employees. The software giant says it believes the takeover would receive regulatory clearance and close in the second half of this year.

Microsoft's previous offer was rebuffed by Terry Semel, who stepped aside last year as chief executive under pressure from shareholders.

Microsoft sent its latest takeover offer to Yahoo late Thursday, shortly after Semel resigned as the company's chairman. The letter is addressed to Semel's successors, Chairman Roy Bostock and the current CEO, co-founder Jerry Yang, who is also one of Yahoo's largest shareholders.

"Microsoft's consistent belief has been that the combination of Microsoft and Yahoo! clearly represents the best way to deliver maximum value to our respective share holders, as well as create a more efficient and competitive company that would provide greater value and service to our customers," Ballmer wrote.

Under terms of the proposed deal, Yahoo shareholders could choose to receive cash or Microsoft common shares. Microsoft says it intends to pay for the company with half cash and half stock.

The Justice Department responded to the proposed deal, saying it is "interested" in reviewing antitrust issues associated with such a merger.

If the deal goes through, analysts expect scrutiny from Congress, Justice and other enforcement agencies, but they say any concerns about search engine or online advertising market power may not be significant enough to stop the transaction.

Sen. Herb Kohl, D-Wis., chairman of the Senate antitrust subcommittee, said the same issues that prompted lawmakers to review the Google-DoubleClick deal exist in a potential Microsoft-Yahoo combination, including examining how it affects consumers, advertisers and businesses "who increasingly use the Internet for their news, commerce and entertainment."

If Yahoo accepts Microsoft's offer, the subcommittee expects to hold hearings to "explore the competitive and privacy implications of the deal," Kohl said.

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